Report Predicts $17bn Decline in Nigerian Oil Revenue

Nigeria’s oil revenue is likely to decline by between 70 per cent and 80 per cent this year, representing between $15 billion and $17 billion, the Chief Executive Officer of Financial Derivatives Company Limited and a member of President Muhammadu Buhari’s Economic Advisory Council, Mr. Bismarck Rewane, has predicted.

Rewane said this in a report he presented at the monthly Lagos Business School executive breakfast meeting for the month of May titled: “Making Hay While the Sun Has Set,” a copy of which was obtained by THISDAY at the weekend.

The country recorded crude oil and gas export sales revenue of $434.85 million in January 2020, the Nigerian National Petroleum Corporation (NNPC) disclosed recently.

Oil contributes 90 per cent of the country’s exports, 30 per cent of bank credits and 50 per cent of fiscal revenues.

According to the economist, the country’s other domestic revenue sources have also been negatively affected by COVID-19.

He estimated a fiscal gap of between $15 billion to $17 billion, adding that government revenues have been under intense pressure.

“The federal government is struggling with the reduction and elimination of subsidies without sparking social unrest. Tax collection, mobilisation and prudent management of tax revenues will be topmost priorities.

“Total external debt has risen to $31 billion and will climb further with more lending from multi-laterals to $36 billion. Debt service burden is already in excess of 96 per cent of independent revenues and terms of trade to deteriorate sharply in 2020,” he added.

He disclosed that export prices have been down by 60 per cent, import prices are down by 15 per cent, while oil export volume was estimated to fall to 1.3 million barrels per day.

In addition, Rewane estimated that the country’s external reserves would drop to $33 billion before increasing to $36.5 billion, due to the inflow of the International Monetary Fund (IMF) loan.

Furthermore, he pointed out that the country’s buffers remain low with high vulnerabilities.

While noting that the month of April was grounded for most Nigerians due to the lockdown in most states as part of measures to halt the spread of the COVID-19, he said it was also to strike a balance between saving lives and livelihoods.

“The economy was brought to a screeching halt. All sectors affected and businesses shut down. There was panic buying and supply chain disruptions saw consumer prices
skyrocketing. The forex market and money markets were paralysed for a few days.

“Hotels, restaurants, cafes, factories, and markets were all affected. The Purchasing Managers’ Index in April crashed to 45.8points as output sub-index fell to 40.50 points, lowest since 2017. This reflects the effects of the lockdown and poor access to raw materials,” he explained.

According to Rewane, the world is suffering from, “lockdown fatigue,” noting that the economic fallout of the pandemic seems more devastating than the medical casualties.

He listed the impact of the virus on the corporate world to include high corporate mortality, high unemployment, defaulting bank debtors, and a rise in toxic assets.

While reviewing the impact of the pandemic on Africa, he noted that poor countries are hardest hit – through a decline in commodity prices, trade, investment, and remittances.

Rewane said African economies could be confronted with extreme poverty, high unemployment, migration, civilian unrest, and possibly political instability. He pointed out that a Marshall Plan, modelled after post-World War 2 US aid package to European countries, could be needed at this time.

“As signs of a possible second wave of COVID-19 sapped risk appetite, the second wave of COVID-19 could trigger more stringent lockdown measures and delay economic recovery.
“African countries will continue to face a number of difficult economic policy challenges and near term focus will be on the containment of the virus.

“So far, African countries have recorded over 55,000 infections with 2,803 fatalities. South Africa, Egypt, and Morocco top the list.

“There will be a continent-wide recession in 2020 as real GDP growth will slide into negative territory (-1.6%) in 2020, before recovering in 2021 on the success of efforts to contain the virus.

“Oil dependent economies like Nigeria and Angola will be badly hit by the twin shocks of COVID-19 and dwindling oil prices. The region will experience weak labour markets in 2020 as a structural and cyclical unemployment spike. The informal sector will be the worst hit,” he added.

He noted the need for structural reforms by economies in the continent to boost GDP growth.